Screening with damages and ordeals
Abstract
A welfare-maximizing designer allocates two kinds of goods using two wasteful screening instruments: ordeals, which enter agents' utilities additively, and damages, which harm agents in proportion to their values for the goods. If agents have common valuations for one of the goods, damages always lead to Pareto-dominated mechanisms: any allocation using damages can be implemented with ordeals alone, while leaving higher rents to inframarginal types. However, damages can be optimal when agents' valuations for both goods are heterogeneous: with multidimensional types, the two devices differ in how they sort agents into the available options, and optimal sorting can sometimes require damages. I nevertheless identify distributional conditions under which damages are not optimal. In those cases, the optimal mechanism produces an efficient allocation by posting ``market-clearing'' ordeals for each good.
Keywords
Cite
@article{arxiv.2508.04456,
title = {Screening with damages and ordeals},
author = {Filip Tokarski},
journal= {arXiv preprint arXiv:2508.04456},
year = {2026}
}